Thursday, January 30, 2020

Congressional Budget Office Projects Trillion-Dollar Deficits Indefinitely: This is What It Will Mean for the Economy


According to the 2020 budget outlook released this week by the Congressional Budget Office, the deficit for this year is projected to reach $1.015 trillion.

Whatsmore, the CBO projects that the deficits will grow every year for the remainder of the 10-year budget window, topping $12.4 trillion of cumulative new deficits by the end of the decade.

“Not since World War II has the country seen deficits during times of low unemployment that are as large as those that we project — nor, in the past century, has it experienced large deficits for as long as we project,” said CBO Director Phillip Swagel in a press conference on Tuesday.

And my view is that the CBO is being conservative relative to how high the deficits could go.

It should be noted that these deficits suck money away from private sector productivity. The CBO gets it right when it says that with increasing federal deficits, “crowding out of private investment occurs gradually, as interest rates and the funds available for private investment adjust in response to increased federal deficits.”

Overall, the CBO projects that the accelerating level of debt, which is slated to more than double as a share of GDP over the next 30 years, will “dampen economic output over time.” It also warns that “rising interest costs associated with that debt would increase interest payments to foreign debt holders and thus reduce the income of U.S. households by increasing amounts.”

-RW


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